Last fall, the Nobel Prize in Economics was awarded to professorRichard Thaler for his work in the field ofbehavioral economics. His most accessible writings on this subjectare “Nudge” and “Misbehaving.” Because the voluntary-enrollmentprocess involves helping people make good decisions in a shortperiod of time, all of us involved in enrollment are becomingbehavioral economists. In honor of Thaler, the next few columnswill focus on bringing behavioral science into enrollment.

Let's consider how we can shape or—to use Thaler's term—nudgeprospects into voluntary participation. We'll consider sixprinciples to help people make good decisions.

1. Reducing choice overload: We constantly lookfor ways to simplify choices during enrollment. At times, employersallow us to limit product selections, phasing in additionalproducts over the year instead of all at once. This is ideal, butemployers prefer offering all products on their benefitadministration platform. Keep choices simple by recommendingpackages of products based on demographics, combined with answersto a handful of qualifying questions.

Another strategy is limiting choices within a product. If theguarantee issue for voluntary life insurance on a group is$150,000, we might only show choices of $50,000, $100,000, or$150,000. Another idea is to package critical illness, accident andhospital indemnity products as a medical insurance supplementplan.

2. Defaults: Employee enrollment is defaultedto at least the amount of savings the employer will match. This hasbeen applied to products like disability income protection and lifeinsurance, but can be complicated based on state laws regardingpaycheck deductions.

While federal regulations encourage positive defaults in 401(k)plans, there are no regulations regarding income protection or lifeinsurance. Maine encourages default enrollment for disabilityincome protection, so this is an area to monitor.

3. Choice over time: People overlook long-termfinancial value in return for short-term financial gain. They alsotend to be more optimistic about the future than they should be.Methods to overcome this include drawing attention to the outcomeof decisions, emphasizing second-best options (indirectly drawingattention to the best option), and limited-time offers.

4. Partitioning options and attributes: Thisinvolves presenting options in categories versus listing specificproducts iteratively. An example would be packaging benefit optionsinto “lifestyle options;” “legacy options;” “supplemental healthoptions;” “event options;” and “income options.”

5. Avoiding attribute overload: Focus theattention of employees over age 50 on LTC or critical-illnessfeatures, while pointing younger workers toward extra benefits inthe event of an accident.

6. Translating attributes: We often compare thecost of our products with a couple of lattes a week. Or we positionthe benefit almost like a lottery ticket: “For $8 a week, you couldreceive $1,000 a week for many years in the event of adisability—and your odds of becoming disabled during your workinglifetime are much better than the odds you will get in acasino!”

Next month, we will continue this series by taking a look atinfluencing behavior during enrollment.